Bread, dough, moolah, dollar, cash – call it what you want - we all have a need for it. While the physical is clearly giving way to the digital, money as a medium of exchange, in whatever form, does make the world go around. The problem is that access can be restricted or carry a burdensome cost if the borrower is seen as risky. Take a mobile phone contract. We’re credit checked and either approved or rejected depending on status. Credit checking ties an individual’s record to publicly available information and that which is shared by financial organisations with credit reference agencies. We know the process as individuals but not everyone appreciates that the same applies to businesses. Quite simply, any business that wants to borrow or buy on the best possible terms needs a 5-star rating. Generating the facts James McGarva, Head of Business information at Experian, defines a credit score as a “measure of creditworthiness, which is made up from a number of different factors to understand financial position and level of financial risk.” This information, he says, “is combined to create a score, which influences whether companies are seen to be a repayment risk.” Equifax’s Product Manager, Andrew Fielder, holds a similar view, but adds that his company looks at data and represents the outcome as not just a score but also “as an amount that a business may be seen as being ‘good for’ on typically a monthly basis.” A credit rating, he says, “aims to rank relative strengths of businesses against each other on a scale regardless of size, so a business that is scored 20 out of 100 is seen as less able to support credit than a business that scores 80 out of 100.” Experian uses a similar methodology. It gives a credit score that can range from 0 to 100, with 0 representing a high risk and 100 representing a low risk. 0, for example, would be applied to a failed company, 26-50 to an above average business, while 91-100 is a very low risk firm. As James outlines, “business information is generally held by a number of credit reference agencies and comes from multiple sources, including creditors, such as banks, credit card companies and building societies, or simply from publicly available records.” It should be pointed out that the information gathering process is not underhand in any way. And to illustrate this, Fielder explains that information credit reference agencies obtain comes “from a wide variety of sources that include more well-known entities such as Companies House or the main Gazettes, as well as closed user group information on payment behaviour and newer data sources like Open Banking.” James says that this information is collated and includes data on existing business credit, such as current accounts, loans and credit card information along with balances and amounts outstanding. On top of that is data on payment performance “which”, he says, “can offer real insight into a business’ financial standing – and any potential problems they might be experiencing”; County Court Judgments (CCJs) and bankruptcies – this type of information is, according to James, “particularly significant to potential or existing suppliers and lenders. It can indicate severe financial difficulties and may well act as a red flag to those considering working with them”; and Companies House records such as details on the directors, previous company names and annual returns. It’s value, as Andrew notes, comes from “agencies looking at data in a number of ways, using aggregated data sources and applying analytical methodologies to build the score.” He carries on, saying, that “agencies use a database that has been built up over time to understand how businesses that were created historically have performed through an extended period.” He adds that scores may also incorporate personal data on company directors. 12 AFTERMARKET APRIL 2024 BUSINESS www.aftermarketonline.net A CREDIT TO YOU Credit information can be used by a business, and it can be used on a business. The key is to understand its importance and impact BY Adam Bernstein
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